Monday, February 25, 2013

Sequester

No
David Fiderer This Week

Just
Me and...the Sequester

All of you David Fiderer groupies,
mobbing my website hoping for more DF will have to wait a bit.

The “Hebrew Hammer”--my nickname
given his powerful writing, not his chosen one--is at work on other
projects which soon will reach fruition,. But don't worry they seem
to involve the same deserving and well known targets.

It's great that readers like his stuff
and—he's assured me—that he'll be producing much more.

But, the “Sequestration” or
“Sequester” seems to be on most everyone's mind these days, not
mortgage finance.

What is the
“Sequester?”

Here's Huffington Post's generic
explanation of the 10 fiscal year $1.2 trillion “Sequestration” or
federal spending cuts, to which Congress and the White House
handcuffed themselves when they failed to agree on a package of
budget cuts and/or additional revenues to meet the deficit reduction
numbers on which each side had agreed.

The sequester stems from the Budget
Control Act of 2011, which mandated the budget cuts if a
congressional "super committee" failed to reach an
agreement on how to reduce the deficit. In November 2011, the
bipartisan group announced it hadn't reached a deal, meaning the
cuts to defense and domestic spending would go into effect in
January 2013. The sequester was later delayed to begin March 1
as part of the "fiscal cliff" negotiations.

As lurid as
recent headlines have been, I suspect that many knowledgeable
observers could slice $90 billion or so annually from the
federal budget, each year for the next 10 years, without great
difficulty, especially if they were permitted to achieve deficit
reduction through changing tax laws which the current exercise
doesn't permit, but easily could be changed.

Of course the
GOP opposes any more revenue raising, despite the fact that its
principals claim they've identified dozens of tax loopholes
which should be closed and bring in revenue.

Who is Stabbing
Whom, Who is Committing Hari Kari??

The Sequestration headlines also
have all been about Democrat and Republican chicanery,
bipartisan political maneuvering all designed to blame the other
party or the White House for the forced budget trimming.

Few can understand why each side
isn't panicking over the pending cuts which many observers feel
will cause greater economic dislocation and drive unemployment
rates higher.

No doubt it will hurt; no doubt it will
boost unemployment and hurt tax revenues; and in an ass backwards way
also be deficit reducing, but if you are knocked out of work, can't
get federal benefits, or stuck at an airport, you may not be too
happy.

The question is will the associated
pain and suffering be worth whatever it is we achieve with this
cowardly approach to budget prioritization, since the gutless
Congress—torn by political gamesmanship—did not and does not seem
up to the job which most citizens claim they want Congress to
perform?

Over the weekend, one observer wrote
“head lice” have a greater national popularity than the
Congress!

Besides taking two weeks off in the
middle of the action, I have no definitive answer for the apparent
political quiescence, but let me speculate.

There has never been a time in
Washington when proposals to reduce federal spending or raise revenue
(taxes!) has not been accompanied by the most cacophonous threats
and warnings of frightful impact and end of the world scenarios.

Those complaints—which always are
heard—don't move votes like they once did.

It goes with the “inside-the-Beltway”
turf. It's the #1 refuge/hideyhole/CYA position of politicians,
lobbyists, interest groups, media and anyone else seeking to
influence a broader audience.

Crying and Whining but
Not Legislating

“If you take away funding for (fill
in your favorite federal program), it will devastate (fill in your
favorite interest or demographic group), and it/they will cease to
exist as we know it/them today!”

Our media has been filled with factoids
about how many federal workers will be furloughed or fired; how many
elderly will lose this benefit or that; how many children won't get
needed injections; how many airport won't have air traffic
comptrollers, which states will lose how much, etc. etc.

Yet, the clock is ticking and despite
President Obama offering a less dreadful set of tax changes and
program cuts, as a substitute, neither side seems to be moving or
really worrying.

And yet, in the past year, most every
Member of Congress, the President, networks, newspaper editorials,
etc, have called for deficit reduction, which policy makers
all but ignored or fudged.

Last year D's and R's took a tiny step
when the Congress agreed to shut down the old Bush tax rates for
those making more than $400K annually, but it threw in some tax
relief for their buddy industries.

So, Congress has failed at the broader
deficit reduction job and the President doesn't have the
executive power to cut spending and do tax tax, absent GOP
help.

The political loggerheads haven't
disappeared and neither side trusts the other, no matter what the
electorate and the electors said last November.

Don't Blame Me,
Blame....?

Maybe, just maybe, all of these
Senators and Members see the “Sequester” as the only way to get
spending under control—even if it means economic dislocation—and
are willing to have the cuts hit and hurt where they may, while
blaming the dislocation on the the other side.

It looks like federal pols might just
believe that is is easier to let the Sequester hit--and then lament
the impact—rather than to stand up collectively and make scalpel
like revenue (tax) changes and federal program cuts to realize
savings.

For more than a year the GOP has
discussed tax proposals which would close loopholes and act as
deficit reduction, but nobody has seen any details. (Does that sound
some of the Romney-Ryan campaign rhetoric?)

I also suspect, in both parties, there
are those in Congress--not just the Tea Party contingent--who
believe that the federal government is fat, inefficient and needs
cutting, even using the clumsy across the board meat ax approach
(which really isn't across the board because several federal programs
are exempt).

The US Will Survive
Major Budget Cuts, But Watch for Tricks

The country just may need to get by
with less federal support, but not a great deal less. The nation
won't crumble. If we are as tough, resolute, and creative as we
believe we are, then we will survive doing what our policy makers for
the past few years have been telling Portugal, Italy, Greece and
Spain, “spend less.”

Despite getting the smaller federal
foot print it claimed it wanted, the congressional Republicans have
balked at being reasonable (all cuts no tax changes) and, once
again, I believe that party will get blamed for much of the
Sequestration fallout and—no matter what they do on
immigration—will lose seats in the 2014 mid term elections, and
likely in 2016 to Hillary Clinton or whomever the Democrats run.

If the Congress and the White House
this week don't dance away from Sequestration, with a choreographed
last minute delay, some head fakes, and a new deadline—as they did
two months ago with this deadline-- federal domestic and military
spending both will suffer cuts, albeit at different levels.

Any Republican or Democrat who
complains about the painful impact-- unless he or she actively has
supported alternatives to reduce the deficit--is a hypocrite since
this will be the smaller federal government, they have been demanding
since President Obama first was elected.

But, never fear, Congress always has
tricks and games to avoid deadlines and unpopular actions.

I suspect the nation will see some
unveiled this week.

Sally Quinn on Vatican
Choices

Very thoughtful column by the former
Washington Post reporter, Georgetown hostess, and current Post religion columnist.

(Sorry, folks, with all of the Catholic
Church hubbub, I am allowed one Vatican centric link.)

Fannie Mae likely will report
“earnings” very soon, possibly this week, all of which are headed
to the US Treasury (and technically—thanks to Hank Paulson's
machinations--won't count against money that the company “borrowed
from Treasury”). Several sources suggest the Fannie's black ink
will be significant and large. Whenever Freddie's earnings are
announced, expect the same.

As I suggested a few weeks ago, that
positive news only will trouble/confuse congressional policy makers
trying to figure Fannie's and Freddie's future. When you are seeking
revenue and clueless, the last thing you want to do is strangle a
“golden goose.”

Maybe our national
legislators will get some answers in this week's issuance of a major
housing report by the Bipartisan Policy Commission.

The commission is co-chaired by former Senate Majority Leader
George Mitchell; former Senator and HUD Secretary Mel Martinez,
former HUD Secretary and San Antonio Mayor Henry Cisneros, and
former Senator and Missouri Governor Christopher Bond.

11 comments:

Anonymous
said...

The Bipartisan Housing Commission submitted their report on Monday. I searched,in vane, for press reports on these reccomendations. Could not find any in the general press. Finally found the text of the report after much searching.

What is wrong with the press?My guess is that few reporters or editors know anything about the housing business and housing public policy- a sad commentary.So Bill, you should begin the dialogue on housing finance policy on this site. Again, the ?White House has not evidenced any interest in federal housing policy.

Over the weekend I spoke with one of the Commissioners and he pointed out (almost lamented) that the Commission spent a year on its work, as if anticipating marginal coverage and recation.

I did see a brief Commission story in the Post calling for a Ginnie Mae like arrangement to replace F&F, with a level of federal insurance guarantee for losses not covered by the issuer and others in the process.

Housing matters draws lots of heated rhetoric in DC but not too much enlightenment on the Hill.

Hopefully someone up there will react differently to this report and at least start the dialogue you suggest.

The report still calls for a federal role, which might make it DOA in the House.

The report protects the 30 year fixed rate mortgage and endorses a federal mortgage reinsurer. this requires a very substantial federal role. This would require a Fannie, Freddie (perhaps combined) and the Federal Home Loan Banks however renamed and reorganized.The Realtors, Homebuilders andMortgage Bankers should be pushing the Obama WH to push a housing reform agenda. Do not leave it to those clowns on the House to come up with a reform plan.

I agree with your depiction of certain House members (and Committee Chairman).

But even the Commission says its plan should be implemented over 5 to 10 years, so nothign is happening soon.

I've suggested using the shorter time frame to work out Fannie/Freddie debt repayment (if Treasury ever could agree on what if nayhtign is owed by the former GSEs) and then turn them loose with no federal guarantees, and save lots of congressional stress, bloviation, and aggravation (plus trees that won't be cut down for all of those unnecessary hearing reports).

The mortgage cogniscienti claim it can't be accomplished while still preserving the 30 year FRM.

I agree with your depiction of certain House members (and Committee Chairman).

But even the Commission says its plan should be implemented over 5 to 10 years, so nothign is happening soon.

I've suggested using the shorter time frame to work out Fannie/Freddie debt repayment (if Treasury ever could agree on what if nayhtign is owed by the former GSEs) and then turn them loose with no federal guarantees, and save lots of congressional stress, bloviation, and aggravation (plus trees that won't be cut down for all of those unnecessary hearing reports).

The mortgage cogniscienti claim it can't be accomplished while still preserving the 30 year FRM.

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